Transfer assets to avoid debt

[Frogwell]

Evening all,

The story so far - we are a small web development company and one of our (very poor paying) clients decided to take their business elsewhere when we started cutting back on work until they paid all their invoices (some were over a couple of years old).

They however ran into problems when their new web company was a lot less patient that we were and refused to do work once it was realised their new client was full of big talk and promises, but less full of money. A lot less nice too it would seem, as they took their new clients sites down and left a blank page, thus effectively killing the business.

To try and get at least some of our money we took our old client to small claims court for a little over £2.5k and won (helped by the fact they did not respond to the summons or turn up at court). As soon as the client is informed that the court rules against them, the director applied to companies house to wind the company up (although they didn't inform us) and also transferred the companies only remaining asset (their domain name) to herself, and then to her boyfriend before selling it.

My question would be - are they allowed to do this? Isn't transferring company assets to avoid debt sort of a bad thing? If it is illegal, is there anything we can really do about it anyway?

Thanks.

 

[OldWelshGuy]

Did they apply to get it struck off or wind it up? I would be very surprised if they wound it up as it would have cost a lot more then £2500 to do so.

 

[Frogwell]

They applied to get struck off. Although they didn't tell us about it, which apparently they should have done, we got companies house to put a stop to it for a while.

 

[The Resolver]

The right over a domain name is Intellectual Property. If it was used by the company and registered to it then it would be difficult for the director to claim it as owned by herself unless she can show that she paid full value for it to the company. However, the domain name itself may have little value as a name and so it would not be a problem for her to buy it. There my be much greater value in it as part of a going business (brand/customer base etc) but I guess , given what you have said , that the business itself has no value.

 

[Frogwell]

Thanks for the reply. The domain name was actually a relatively good one and I'm sure it would have sold for a few thousand, certainly more than enough to have cleared the debt to us and had had some left over. I would assume the reason behind transferring it to herself (and then to her boyfriend) before selling it was to avoid us being able to enforce the court order and claim any of it.

Essentially I'm trying to work out whether she as legally allowed to do that, or if it would constitute some sort of illegal debt avoidance measures (as far as I can gather a company applying to be struck off has to do everything it reasonably can to pay it's debts). If it was illegal, is there anything we can do about it? Can we bring any sort of legal proceedings against the director? Would it be a matter of fraud (that would be of any interest to the police etc)?

 

[martin_frost]

You have an alternative approach, if work, as in actual coding you did was not paid for, claim copyright over that work.

When the new company/person starts trading sue them on this basis.

 

[martin_frost]

Assuming you have not assigned the copyright to the original company.

 

[OldWelshGuy]

was the domain sold or was the actual work you did sold? they need to be seperated.

The directors must act in the best interest of the company, and if they sold an asset at well below the market value to themselves, and as a result the company became insolvent, then they have not carried out their fiduciary duty as directors.

 

[Frogwell]

The new company would have bought the domain name only I'd have thought - the code was actually quite out of date and probably not worth very much at all. I don't think the company became insolvent because the director sold the domain name to herself, I think the company had been trading insolvent for quite some time and was getting by on hollow promises and pseudo charm. I daresay the director was trying to find a new development company willing to work on promises but decided to give it up when the court found against her company. I wouldn't have thought she even bought the domain name from her company, I'd imagine she just transferred it. Although is there any way we can find out whether she did pay for it or not and if so how much for? The latest company accounts made no mention of it.

 

[JohnJP]

Hi

My thoughts on this.

As a domain investor, I can perhaps give an independent appraisal of what name might have been worth, PM details of the name if you wish.

Basically a domain name is an IP asset of the business if it registered in the business trading name, if it was decent one, chances are it was bought in the secondary market for a wedge of cash at some point.

I am not expert but if there were assets in the business like a domain name worth several thousands then it should have been sold and used to pay the debts of the business, prior to petitioning for ‘Striking Off’. Most of the time domain names ‘escape’ an insolvency practitioners eyes because most are clueless about their true value, sometimes it is the name itself other times it is the SEO and brand value behind all the promotional activity on the previous name (bit like taking over the phone number of an old defunct company to capture their sales enquiries). So in reality some people get away with transferring digital assets away into their own name.

In this case I would have thought with the evidence you could collate you would have a case to bring to the attention of companies house – search for ‘Strike off, dissolution – part 1 annual requirements - GP4’ on companies house web site. They helpfully suggest that domain names should be transferred before ‘Striking Off’ obviously advice written civil servants who don’t understand that domains might have value, but also details what the offences and penalties are for abusing the ‘strike off’ process.

Johnp

 

[Frogwell]

Thanks for that John, I'll PM you the address in a minute. When the director applied for the company to be struck off she didn't notify us, we told Companies House about that but they didn't seem interested at all. Anecdotal evidence seems to suggest that companies house are particularly interested in enforcing the rules unless there's some decent PR for themselves. My own dealings with them, limited admittedly, would support that.

 

[Alan R Price]

In short, any transfer of assets from an insolvent company to a third party at an undervalue with the intention of defeating creditors is both criminal - which could lead to prosecution - and a breach of the director's duties - which could lead to action by a liquidator.

In practice however, unless the amounts involved are material (several thousand pounds) the official receiver will not be interested and it will not be commercially viable for a liquidator to sue the directors involved.

JohnJP, I'd be interested in hearing more about how you get better value for domain names etc. Can you PM me some contact info. please?

 

[OldWelshGuy]

Thanks Alan that was what I was alluding to in my post. The directors must act in the best interests of the company at all times, and illegally transferring assets by undervaluing and deceptive transferring to hide the paper trail (which is what appears to have been done here), would be frowned upon. If it can be proved that the directors acted illegally then they could well lose the Ltd company protection and be liable themselves for the debt.

 

[Alan R Price]

Indeed, OWG. Regrettably although this type of thing happens all too frequently, the OR rarely takes on cases for prosecution. The maximum penalty is seven years in prison (yes, seven!) or an unlimited fine.

 

[iJustice]

Contact Companies House on 0303 1234 500 and ask them to stop the striking-off of the business. They cannot strike-off a business if they are owed money. They will ask you to send proof of the debt, or judgment and stop the process for 6 months which enables you to enforce your debt. You get to choose if you want your name to be made public or not. Companies House are very supportive.

I hope this helps

 

[Gyumri]

I don't think the identity of the objectors to a proposal to strike off can be revealed as a matter of law?

 

[iJustice]

Our claimants are currently being asked by Companies House if they want their name to be disclosed or not.